PROBLEMS OF THE SOFTWOOD LUMBER INDUSTRY FRIDAY, APRIL 26, 1963 U.S. SENATE, Columbia, S.C. The committee met, pursuant to notice, at 10:40 a.m., in the Senate Chamber, the Capitol Building, Columbia, S.C., the Honorable Strom Thurmond presiding. Present: Senator Thurmond. Also present: Ralph Horton, assistant chief clerk; H. Samuel Stilwell, staff counsel; and Tom C. Mason, director, Forest Products Division, Business and Defense Services Administration, U.S. Department of Commerce. Senator THURMOND. Ladies and gentlemen, this is the first in a series of three hearings which the Senate Commerce Committee has scheduled to inquire into the economic condition of the southern lumber industry. It is a great pleasure for me to be here in the capital city of my home State. These hearings will continue tomorrow in Atlanta, Ga., and the following Saturday, May 4, in Shreveport, La. Last year, during the final session of the 87th Congress, the Senate Commerce Committee held a similar series of hearings in the Northwestern region. The lumber industry is faced with several problems which affect all regions with almost equal severity, but there are, of course, some problems which may be unique with a particular section. Also, there are competing views as to the solution of common problems. For these reasons, the committee wants to have the views of everyone concerned and from all regions of the country. These hearings are in the nature of a factfinding inquiry. They are for the purpose of providing a forum where problems in which the National Government is interested can be aired. Of course, many of the economic ills which will be uncovered are not within the realm of jurisdiction of the National Government. With this in mind, you are invited to discuss any topic which you think pertinent to the inquiry. The lumber industry is a most important segment of the economy of South Carolina and of the whole country. Trees are one of the leading money crops in South Carolina. The impact of the administration's proposed tax modification on timber is certainly within the realm of this inquiry. In this connection, I would like to place in the record a concurrent resolution of the South Carolina General Assembly in opposition to this portion of the President's tax program. Staff assigned to this hearing: Ralph W. Horton and H. Samuel Stilwell. 1 (The document referred to follows:) CONCURRENT RESOLUTION MEMORIALIZING THE CONGRESS OF THE UNITED STATES TO REJECT THAT PORTION OF THE TAX PROGRAM OF THE PRESIDENT OF THE UNITED STATES WHICH WOULD SUBSTANTIALLY ELIMINATE THE CAPITAL GAINS ON THE SALE OF TIMBER AND URGING THE CONGRESSIONAL DELEGATION FROM SOUTH CAROLINA TO OPPOSE, WITH ALL THE STRENGTH AT THEIR DISPOSAL, THE PASSAGE OF SUCH A MEASURE Whereas the General Assembly of South Carolina has been informed that a portion of the tax program of the President of the United States includes the substantial elimination of capital gains on the sale of timber; and Whereas this information has caused the general assembly and a large segment of the population of the State great concern in view of the fact that timber and forest products generally constitute the No. 1 farm crop of the State; and Whereas the enacting into law the President's proposal will most certainly affect the economy of the State very adversely; and Whereas the general assembly notes that many less advantageous crops of this State have, through recent years, been shifted to forests and that thousands of acres of land formerly planted in less productive crops are now planted in vast forests resulting in great financial gain; and Whereas the members of the general assembly believe that any effort to saddle this new industry of the State with an additional tax burden would serve to greatly discourage the further advancement of this most important crop: Now, therefore, be it Resolved by the house of representatives (the senate concurring); That the Congress of the United States is hereby memorialized to reject that portion of the tax program of the President of the United States which proposes the substantial elimination of the capital gains of the sale of timber; be it further Resolved, That the members of the congressional delegation from South Carolina are urged to oppose with all the strength at their command the enactment of this legislation; and be it further Resolved, That a copy of this resolution be forwarded to the presiding officers of the two Houses in the Congress and to each member of the congressional delegation from South Carolina. STATE OF SOUTH CAROLINA, I hereby certify that the foregoing is a true and correct copy of a resolution adopted by the South Carolina House of Representatives and concurred in by the Senate. [SEAL] INEZ WATSON, Clerk of the House. Senator THURMOND. Another topic of great concern is the impact of Canadian lumber imports. According to the latest figures available from the Department of Commerce, Canadian softwood lumber imports in February of this year increased 67 percent over January to a total of 379,672,000 board feet. Of the total U.S. lumber market in February, Canadian softwoods accounted for 17.1 percent, a 7.4percent rise over the preceding month, and a 13.6-percent increase over February 1962. This is a matter of great concern to the Commerce Committee. We are happy to be here and have your views on this and related matters. Our first witness this morning will be Mr. H. F. Beal. Mr. Beal, will you come around? I might make this statement, and this will apply equally to all witnesses. If you have prepared statements, especially if they are long statements, you may wish to just present your statement and it will go in the record in full. Then if you wish to elaborate any further, feel free to do that. What I am driving at is you do not have to read a long statement, if you have a long, technical prepared statement, because we will print it in the record just as you prepared it. Then if you want to make any additional remarks, feel free to do so. STATEMENT OF H. F. BEAL, PRESIDENT, BEAL LUMBER CO., JACKSONVILLE, FLA., ON BEHALF OF SOUTHEASTERN LUMBER MANUFACTURERS ASSOCIATION Mr. BEAL. I am H. F. Beal, president of the Beal Lumber Co. Our general offices are located in Jacksonville, Fla. We operate a sawmill in South Carolina. We do a wholesale business handling all types of woods from all areas and maintain a distribution yard in the city of Miami. For that reason we have been in close contact with not only the southern woods but the methods, sales, and all matters pertinent to Canadian woods as well as other parts of this country. We in the South have been damaged and damaged badly, almost to the point of ruin. And from our experience and examination of the causes we find that these causes were brought about and have been sanctioned by three Federal departments-first, the Interstate Commerce Commission, second, the Department of Commerce, and the third, the Federal Housing Administration. The first matter I would like to take up is the matter of freight. And, Mr. Chairman, I would like to state to you that when I refer to any statement herein or quote any agency I have with me written documented proof of those statements, and I will be glad to turn it all over to you for verification. First, I want to say this. I want to bring out to you why the Canadian lumber industry has been able to get into our markets and create this condition and how their volume developed. Up to about 1953 to 1954 we in the South did not know what a Canadian piece of lumber was. We had practically no knowledge or experience at all with west coast lumber. These freight rates came in, and they were granted group rates for points of origin. That means that the same identical rate from Oregon applied to California, Oregon, Washington, Montana, all the way up to British Columbia, almost to Alaska. They had the one rate. It does not make any difference where your mill is. Then to compound the situation they have what is known as group destination rates. They have one rate. A piece of lumber from Canada or a piece of lumber from the west coast costs you no more money in Boston, Mass., or in parts of Maine than it does in Indianapolis. On the transportation of goods from Chicago to Boston the shipper pays 7 cents per hundred to get his lumber transported from the Indiana-Illinois line all the way into that territory regardless of where it is. Now, that has created a condition that we cannot contend with. If the freight rates to Chicago are fair and proper and if the freight rates to St. Louis are fair and proper, they are $1.34 to Chicago and $1.32 to St. Louis, but that same lumber is landed anywhere in the official territory on the Atlantic coast from Norfolk, Va., into Maine for $1.41, just 7 cents a hundred more. The Canadians get full benefit of that, but we in the South are completely denied. In 1961 the west coast people asked for a 7-cent reduction. The Interstate Commerce Commission refused that. Commissioner Freas deemed it was necessary to have hearings, and we spent approximately $10,000 appearing as witnesses, attorneys, and preparing statements. The west coast people claimed that they needed that 7 cents per hundred in order to be competitive in the markets. The Canadians got the benefit of that. The rate went into effect in 1961, in December, because the Commission had not ruled on it completely pending these hearings. We submitted a brief. We appeared in Atlanta and in Washington with sworn statements. Yet division 2 of the Interstate Commerce Commission, comprised of Commissioner Freas, Commissioner Herring, both west of the Mississippi River, and Commissioner Webb, issued a document on February 11, 1963, that, to make it mild, is astounding. In that document they stated that freight rates had no bearing on the loss of markets of yellow pine. As you gentlemen probably know, from the South you enter the official territory at Richmond. It is known as the Virginia cities. Now, if we ship a carload of lumber to Boston we have to pay 51 cents per hundred pounds to get that car transported from the official territory in Richmond to Boston, but our competitor gets that same haul from Chicago to Boston for 7 cents. It costs us 14 cents to get that carload of lumber into Washington, 110 miles. Now, they used as a basis in this document for freight rates, for comparison, the city of Elizabeth City, N.C., which is 45 miles this side of Norfolk. In other words, it is just 45 miles from the official territory. They said that would be a fair break. We in the South have no blanket rates. If a mill is 100 miles south of the other one and he wants to ship north, he pays a high rate, and it is progressively higher as we go down. They represented in their document that the southern rates from Elizabeth City were 562 cents to Boston. Our mill is approximately 200 miles south of Elizabeth City, and our rate is 79 cents. And we have a favorable rate. If you go down to middle Georgia, that rate to Boston is 89 cents. You get into Florida, and it is 92 cents. But the Commission did not care to use what would represent an average rate from the South, but they took a rate that was practically in the official territory. That is one statement they make. Another one is that other reasons cause shrinkage in sales. We know there are a great many reasons, such as our cost of production where we use three men to their one, our cost of timber, the fact that our timber is scattered, which costs us a lot more money than it does out there. But the Interstate Commerce Commission refused flatfootedly to permit us to inject into any of that testimony one word about our costs or comparative costs. |